Compaq Computer Corporation and Subsidiaries - Page 29




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          evidence.  Instead, respondent relied heavily on the economic               
          analysis of Clark J. Chandler (Chandler) to support respondent's            
          section 482 allocation.  Respondent neither presented an                    
          alternative CUP analysis nor proposed specific adjustments to               
          petitioner's analysis.                                                      
               Chandler used two cost-plus alternatives.  One, using IEC as           
          a cost-plus comparable, resulted in a weighted average markup on            
          total Compaq Asia standard costs of 15.2 percent.  After he                 
          factored in accounting differences between Compaq Asia and IEC,             
          the result was a weighted average markup on Compaq Asia standard            
          costs of 6.5 percent.  Based on an analysis of operating margins            
          and operating profits as a percent of average operating assets,             
          as well as on an analysis of operating assets divided by total              
          assets, Chandler concluded that respondent's determination was              
          reasonable.  He also used underlying data from IEC to determine             
          weighted average CUP/cost-plus markups over Compaq Asia total               
          standard costs of 12.2 percent for 1991 and 14.2 percent for                
          1992.                                                                       
               Chandler, however, used unrealistic material, labor, and               
          overhead markups in applying his formulas.  If markups in the               
          range of industry markups are used, the results of Chandler's               
          analysis bear no recognizable relation to respondent's notice               
          amounts.  As set forth below, petitioner's CUP analysis                     
          establishes an arm's-length price for PCA purchases by Compaq               





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